Reed's Inc. Reports Second Quarter 2012 First Profitable Quarter
Released: 08/13/12 11:49 AM EDT
39% Gross Margin Improvement

LOS ANGELES, CA -- (Marketwire) -- 08/13/12 -- Reed's, Inc. (NASDAQ: REED) maker of the top-selling sodas in natural food stores nationwide, today announced the financial results for its second fiscal quarter ending June 30, 2012.

Financial Highlights for the Quarter:

  • Revenues increased 27% to $7.8 million in 2012, compared to 2011.
  • Gross profit increased to $2.7 million in 2012, an increase of 39% from 2011. The gross profit percentage increased to 34% of sales, an increase from 31% in 2011.
  • Earnings before non-cash items and finance costs (modified EBITDA) increased to $831,000 during 2012, as compared to $395,000 in the prior year period. (See EBITDA table at end of this release for further non-GAAP information).
  • Net income for the 2012 second quarter was $444,000, or $0.04 per share, compared to a loss of $55,000 a year earlier.
  • Reduced inventory levels by over $1 million.
  • Working capital at June 30, 2012 was $3.1 million, as compared to $2.7 million at December 31, 2011.

Operational Highlights:

  • Developed and launched new Reed's Culture Club Kombucha in four flavors.
  • Launched Reed's Chocolate Crystallized Ginger candy.
  • New distribution partners in, South Carolina, Michigan, Utah and Tennessee.
  • Started shipping a new Private Label project for large national supermarket chain.
  • Increased sales team, adding new, experienced players in key markets to meet increased demand of our brands and to maintain and grow solid relationships with distributor and retail partners.

"This is our 11th quarter of double-digit revenue growth and has resulted in the company moving into a profitable position," stated Chris Reed, Founder and CEO of Reed's, Inc. "The second quarter results are confirmation that our 2012 business plan remains on track. Our branded and private label categories continue expand. We believe our momentum will continue in the second half of the year. Our new Kombucha line continues to roll out nationally. Early results are positive."

James Linesch, Chief Financial Officer stated, "We have reached a profitable sales velocity and margin contribution by holding down costs and by investing in effective promotions. Our gross margins have increased mostly through higher effective prices and lower production and raw material costs overall, while also making a higher investment in promotions and discounts this year. We gained more liquidity by reducing our inventory levels and improving turnover through careful production scheduling and timing of raw materials purchases. We have aggressive plans for expansion on several fronts this year, and we believe that our company is well-capitalized to carry out our plans."

The Company will conduct a conference call @ 4:15PM EDT today, August 13th, to discuss its 2012 second quarter results and outlook for the future. To participate in the call, please dial the following number 5 to 10 minutes prior to the scheduled call time (866) 240-5139. International callers should dial (713) 481-0091.

A replay will be available within a few days after the meeting in the investor relations section of the Company's website at: http://www.reedsinc.com/investor-relations/

About Reed's, Inc.

Reed's, Inc. makes the top-selling natural sodas in the natural foods industry sold in over 13,000 natural food markets and supermarkets nationwide. Its six award-winning non-alcoholic Ginger Brews are unique in the beverage industry, being brewed, not manufactured and using fresh ginger, spices and fruits in a brewing process that predates commercial soft drinks. The Company owns the top-selling root beer line in natural foods, the Virgil's Root Beer product line, and the top-selling cola line in natural foods, the China Cola product line. In 2012, the Company launched Reed's Culture Club Kombucha line of organic live beverages. Other product lines include: Reed's Ginger Candies and Reed's Ginger Ice Creams. In 2009, Reed's started producing private label natural beverages for select national chains. Reed's products are sold through specialty gourmet and natural food stores, mainstream supermarket chains, retail stores and restaurants nationwide, and in Canada, as well as through private label relationships with major supermarket chains.

For more information about Reed's, please visit the Company's website at: http://www.reedsinc.com or call 800-99-REEDS.

Follow Reed's on Twitter at http://twitter.com/reedsgingerbrew

Reed's Facebook Fan Page at https://www.facebook.com/ReedsGingerBrew

SAFE HARBOR STATEMENT

Some portions of this press release, particularly those describing Reed's goals and strategies, contain "forward-looking statements." These forward-looking statements can generally be identified as such because the context of the statement will include words, such as "expects," "should," "believes," "anticipates" or words of similar import. Similarly, statements that describe future plans, objectives or goals are also forward-looking statements. While Reed's is working to achieve those goals and strategies, actual results could differ materially from those projected in the forward-looking statements as a result of a number of risks and uncertainties. These risks and uncertainties include difficulty in marketing its products and services, maintaining and protecting brand recognition, the need for significant capital, dependence on third party distributors, dependence on third party brewers, increasing costs of fuel and freight, protection of intellectual property, competition and other factors, any of which could have an adverse effect on the business plans of Reed's, its reputation in the industry or its expected financial return from operations and results of operations. In light of significant risks and uncertainties inherent in forward-looking statements included herein, the inclusion of such statements should not be regarded as a representation by Reed's that they will achieve such forward-looking statements. For further details and a discussion of these and other risks and uncertainties, please see our most recent reports on Form 10-K and Form 10-Q, as filed with the Securities and Exchange Commission, as they may be amended from time to time. Reed's undertakes no obligation to publicly update any forward-looking statement, whether as a result of new information, future events, or otherwise.

                                REED'S, INC.
                     CONDENSED STATEMENTS OF OPERATIONS
         For the Three and Six Months Ended June 30, 2012 and 2011
                                (Unaudited)

                          Three months ended June    Six months ended June
                                    30,                       30,
                         ------------------------  ------------------------
                             2012         2011         2012         2011
                         -----------  -----------  -----------  -----------
Sales                    $ 7,831,000  $ 6,191,000  $14,370,000  $11,331,000
Cost of tangible goods
 sold                      4,696,000    3,762,000    8,881,000    7,083,000
Cost of goods sold -
 idle capacity               438,000      493,000      807,000      895,000
                         -----------  -----------  -----------  -----------

    Gross profit           2,697,000    1,936,000    4,682,000    3,353,000
                         -----------  -----------  -----------  -----------

Operating expenses:
Delivery and handling
 expenses                    585,000      544,000    1,064,000      932,000
Selling and marketing
 expense                     699,000      601,000    1,421,000    1,181,000
General and
 administrative expense      805,000      676,000    1,545,000    1,331,000
                         -----------  -----------  -----------  -----------
  Total operating
   expenses                2,089,000    1,821,000    4,030,000    3,444,000
                         -----------  -----------  -----------  -----------

    Income (loss) from
     operations              608,000      115,000      652,000      (91,000)

Interest expense            (164,000)    (170,000)    (332,000)    (329,000)
                         -----------  -----------  -----------  -----------

Net income (loss)            444,000      (55,000)     320,000     (420,000)

Preferred stock
 dividends                   (23,000)     (33,000)     (32,000)     (44,000)
                         -----------  -----------  -----------  -----------
Net income (loss)
 attributable to common
 stockholders            $   421,000  $   (88,000) $   288,000  $  (464,000)
                         ===========  ===========  ===========  ===========

Income (loss) per share
 available to common
 stockholders, basic     $      0.04  $     (0.01) $      0.03  $     (0.04)
                         ===========  ===========  ===========  ===========
Weighted average number
 of shares outstanding -
 basic                    11,041,558   10,818,170   10,981,317   10,719,256
                         ===========  ===========  ===========  ===========
Income (loss) per share
 available to common
 stockholders, diluted   $      0.04  $     (0.01) $      0.02  $     (0.04)
                         ===========  ===========  ===========  ===========
Weighted average number
 of shares outstanding -
 diluted                  11,940,343   10,818,170   11,647,148   10,719,256
                         ===========  ===========  ===========  ===========


                                Reed's Inc.
                          MODIFIED EBITDA SCHEDULE

                                Three months ended      Six months ended
                                      June 30,               June 30,
                               ---------------------  ---------------------
                                  2012       2011        2012       2011
                               ---------- ----------  ---------- ----------
Net loss                       $  444,000 $  (55,000) $  320,000 $ (420,000)
                               ---------- ----------  ---------- ----------

Modified EBITDA adjustments:
Depreciation and amortization     189,000    165,000     372,000    308,000
Interest expense                  164,000    170,000     332,000    329,000
Stock option and warrant
 compensation                      29,000     80,000      55,000    129,000
Other stock compensation for
 services                           5,000     35,000      20,000     77,000
                               ---------- ----------  ---------- ----------
  Total EBITDA adjustments        387,000    450,000     779,000    843,000
                               ---------- ----------  ---------- ----------

Modified EBITDA                $  831,000 $  395,000  $1,099,000 $  423,000
                               ========== ==========  ========== ==========

The Company defines modified EBITDA (a non-GAAP measurement) as net loss
 before interest, taxes, depreciation and amortization, and non-cash
 expense for securities. Other companies may calculate modified EBITDA
 differently. Management believes that the presentation of modified EBITDA
 provides a measure of performance that approximates cash flow before
 interest expense, and is meaningful to investors.


                                REED'S, INC.
                          CONDENSED BALANCE SHEETS

                                                  June 30,     December 31,
                                                    2012           2011
                                               -------------  -------------
ASSETS                                          (unaudited)
Current assets:
  Cash                                         $   1,391,000  $     713,000
  Inventory                                        5,046,000      6,099,000
  Trade accounts receivable, net of allowance
   for doubtful accounts and returns and
   discounts of $195,000 and $135,000,
   respectively                                    2,543,000      1,626,000
  Prepaid inventory                                  241,000        168,000
  Prepaid and other current assets                   148,000        123,000
                                               -------------  -------------
    Total Current Assets                           9,369,000      8,729,000

Property and equipment, net of accumulated
 depreciation of $2,048,000 and $1,739,000,
 respectively                                      3,418,000      3,512,000
Brand names                                        1,029,000      1,029,000
Deferred financing fees, net of amortization
 of $88,000 and $50,000, respectively                 52,000         85,000
                                               -------------  -------------
    Total assets                               $  13,868,000  $  13,355,000
                                               =============  =============

LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
  Accounts payable                             $   2,648,000  $   2,310,000
  Accrued expenses                                   208,000        196,000
  Dividends payable                                   85,000         83,000
  Recycling fees payable                              99,000        111,000
  Line of credit                                   2,951,000      3,095,000
  Current portion of long term financing
   obligation                                         80,000         71,000
  Current portion of capital leases payable           61,000         56,000
  Current portion of term loan                       163,000        152,000
                                               -------------  -------------
    Total current liabilities                      6,295,000      6,074,000

Long term financing obligation, less current
 portion, net of discount of $614,000 and
 $626,000, respectively                            2,231,000      2,247,000
Capital leases payable, less current portion         121,000        153,000
Term loan, less current portion                      490,000        576,000
                                               -------------  -------------
    Total Liabilities                              9,137,000      9,050,000
                                               -------------  -------------

Commitments and contingencies

Stockholders' equity:
  Series A Convertible Preferred stock, $10
   par value, 500,000 shares authorized,
   32,941 and 46,621 shares issued and
   outstanding, respectively                         329,000        466,000
  Series B Convertible Preferred stock, $10
   par value, 500,000 shares authorized,
   52,507 and 80,415 shares issued and
   outstanding, respectively                         525,000        804,000
  Common stock, $.0001 par value, 19,500,000
   shares authorized, 11,207,769 and
   10,885,833 shares issued and outstanding,
   respectively                                        1,000          1,000
  Additional paid in capital                      23,478,000     22,924,000
  Accumulated deficit                            (19,602,000)   (19,890,000)
                                               -------------  -------------
    Total stockholders' equity                     4,731,000      4,305,000
                                               -------------  -------------
    Total liabilities and stockholders' equity $  13,868,000  $  13,355,000
                                               =============  =============

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Contact:
Investor Relations
Reed's, Inc.
(310) 217-9400 ext. 18
Email: Email Contact
www.reedsinc.com